Company law - Advise critically Alice Lau and Benson Cheung, with strategic proposal, how to structure the company and to accommodate the wishes of Alice's parents, Mark and themselves

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Assignment Question 2

Alice Lau, a talented designer, and her husband, Benson Cheung, are running a small business engaged in the manufacturing and selling of electronic toys. They are seeking to expand the business and have persuaded Alice’s parents to provide funds for expansion. Alice’s parents do not wish to participate in the day-to-day running of the business. But they need an income from their investment and they would like to be consulted on major matters of policy and to be able to recover their capital in the future.

Alice Lau and Benson Cheung wish to retain control of the business but want to give Alice’s brother, Mark Lau, who works for them, greater involvement in the business. Alice and Benson have decided to form a company in which they will own the majority of shares and be directors.

Advise critically Alice Lau and Benson Cheung, with strategic proposal, how to structure the company and to accommodate the wishes of Alice’s parents, Mark and themselves in the short-run perspective of business development and the practical matters for administering the proposed company after incorporation within the regulatory framework of HKSAR company law.

TYPES OF COMPANIES IN HONG KONG

Basically, there are three types of business organization in Hong Kong. They are the sole proprietorship, partnership and limited company. However, as stated in the question, Alice and Benson have decided to form a company in which they will own the majority of shares and be directors. Therefore, it is not necessary to mention the sole proprietorship and partnership in this case as they are not applicable to issue shares.

Limited Companies

A limited company is a separate legal entity and should be registered under the Companies Ordinance. The liabilities of shareholders are limited to the registered share capital. According to the Companies Ordinance, a limited company is required to prepare audited accounts.

There is no statutory minimum capital requirement in Hong Kong. In practice, the authorized capital would be HK$10,000 and the issued share capital could be as low as HK$2. Right now the capital duty paid to the Government is HK$1 per HK$1,000. The directors and shareholders of a limited company need not be Hong Kong residents. Only persons who have attained the age of 18 can be appointed as directors. A body corporate (other than a listed company) can act as a director of a company. According to the Companies (Amendment) Ordinance 2003 which became operative on 13 February 2004, it permits the formation of a limited company by one or more shareholders. It also permits a limited company to have at least one director

Limited by guarantee

Most of companies, formed for profit-making purposes, are private companies limited by shares. For those limited by guarantee limits the liability of its members to such amount they undertake to contribute to the company in case of winding up. It is appropriate when there is no intention to distribute the company’s operating surplus/profits to its members and not need to have shares to raise fund for recurring operating expenditure. These companies are formed for non-profit-making. For example, clubs or associations formed for charitable, educational, and other social purposes.

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Private and non-private limited companies

Another type of limited companies is company limited by share capital; it is the typical of profit sharing companies. They are divided into private and non-private companies.

Private company is a company in which Articles of Association comply with S29 of CO, i.e. restricts the right of shares transfer, limits number of members from 1 to 50 and prohibits any invitation to the public to subscribe for any shares or debentures of the company while public company does not subject to these restrictions specified in S29. However, it is required to ...

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